Health care costs to jump for some small and midsize Michigan businesses

Oct. 20, 2013

Written by

Detroit Free Press Business Writer

Some of the new taxes and fees in the Affordable Care Act being passed through to businesses.

■ Transitional Reinsurance Program fee: $63 per year, per plan enrollee, including spouses and children. Money will compensate insurance carriers that cover the sickest patients. ■ Patient-Centered Outcomes Research Institute (PCORI) fee: $1 a year per insured employee. Later rises to $2. Money is to pay for treatment effectiveness research. ■ The insurer fee: Insurance carriers will be assessed a portion of the entire health insurance industry’s new annual tax under the law. This money is to fund subsidies for low-income people buying insurance on the new exchanges. Industry experts expect insurers to pass on the fee to businesses. ■ “Cadillac Tax”: A 40% excise tax on high premium insurance plans will take effect in 2018. Source: Health insurance industry research

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Management at one 40-employee Michigan car dealership has been bracing for higher health insurance costs in 2014, when the Affordable Care Act goes into full effect.

But they were shocked to hear this month just how high their renewal rate with Blue Cross Blue Shield of Michigan would jump — 65%. Add in the new taxes and fees in the health care law that affect businesses, and the total cost for the dealership of providing medical benefits would rise another 5%.

Since learning of these increases, Extreme Dodge Chrysler Jeep of Jackson has debated whether it can afford to continue offering health care to employees, said Mark Trudell, the dealership’s general manager.

If it drops coverage, workers would have to get coverage through a spouse or buy insurance on their own, either directly through an insurer or through the new Michigan Health Insurance Marketplace, also known as a state exchange.

“I am trying to research and see if it’s in our best interest to keep our group coverage or to not offer insurance and put our employees into the exchange,” Trudell said last week. “We want to do what’s best for our employees, but also you can’t take on all that burden yourself as a company.”

With just over two months to go before the full roll-out of the Affordable Care Act, often called Obamacare, some small and midsize Michigan businesses are preparing for the law’s higher taxes and coverage costs by locking in current insurance rates, downgrading the quality of their employees’ benefits or looking into dropping coverage altogether. Even workers who are fortunate enough to keep their company’s coverage could find themselves paying much higher premiums and higher out-of-pocket costs for medical care.

Even though the Obama administration delayed until 2015 the financial penalties on businesses with 50 or more full-time equivalent employees that don’t offer adequate health insurance benefits, several taxes and fees will kick in by Jan. 1 — along with a major change in how insurance premiums are calculated.

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Those new taxes and fees amount to a 4% to 6% health care cost increase for many small and midsize businesses in Michigan that already offer health benefits, according to interviews with insurance brokers and benefits lawyers.

The new premium calculus has resulted in some businesses getting hit with renewal prices for benefit plans that jump 20% or more.

To be sure, not all businesses are facing double-digit rate hikes under the Affordable Care Act. Insurance officials with Blue Cross Blue Shield and Health Alliance Plan say some businesses will actually see decreases in their plan costs come January.

The law’s new premium structure is particularly beneficial for businesses with many older workers or in industries with physically demanding work, as these factors meant higher insurance rates in the past.

Health care experts note that many businesses have been swallowing high single-digit increases to their health care costs for years yet continue to offer medical benefits to retain and attract good workers. Still, rising costs for employers can mean stagnating paychecks for employees.

“Even without the health care reform law, every year we’ve seen the trend of our deductibles and co-pays getting a little bit higher,” said David Lindgren, corporate compliance officer at Rosemont, Ill.-based Flexible Benefit Service, which serves health insurance brokers. “This kind of escalates that.”

To dodge the 2014 rate increases, a record number of Michigan businesses are choosing to renew their existing health insurance plans a month or two early and lock in 2013 rates, according to insurance brokers and two major carriers.

About 60% of HAP’s small group insurance plan customers are doing early renewals, said Marc Vanderburg, an associate vice president for the carrier.

The majority of health plan renewals for small and medium-size businesses in Michigan traditionally occur in January.

“December has become the new January for us” for plan renewals, said Lauren Simonetti, a benefits adviser at Bloomfield Hills-based Austin Financial Group. “We had a client that had about a 150% increase and we moved them to an early renewal in order to avoid that.”

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Some businesses here and nationwide are looking to scale back their medical benefits, often citing the cost pressures of the Affordable Care Act.

Home Depot said last month it will stop offering health coverage for about 20,000 part-time workers and that coverage for full-time workers will cost more.

Michigan insurance brokers and benefits lawyers interviewed for this story said that because of client confidentiality, they could not disclose the names of the local firms that are downgrading benefits or considering doing so.

“I do definitely see a trend in our clients in making some plan decision changes — whether it be moving towards a higher deductible or increased premium (costs) on employees, or removing some benefits,” said Amy Christen, a benefits law attorney with Dykema in Bloomfield Hills.

Christen said a few of her client businesses are adding an additional health insurance plan option with higher deductibles and less generous benefits, but at a lower cost to the employees and the business. Employees at those firms could still opt to keep their existing level of coverage, but they would pay more for it.

She has yet to have a small-business client halt medical benefits for employees, as dropping coverage could place that business at a talent disadvantage to industry peers that do offer health care.

The new premium structure is affecting small and midsize businesses more than large ones, as the health care law requires a level of benefits that many of these smaller firms haven’t offered, according to John Dunn, vice president for small and middle group business at Blue Cross Blue Shield of Michigan.

“A lot of these increases are commensurate with the increased coverage,” Dunn said. “So it’s not like they’re just going up for no reason.”

On average, renewal rates for Blue Cross Blue Shield’s small group plans will increase 8% to 10% in 2014, Dunn said.

“We’re probably going to have 25% or more of our groups get no increase or a (decrease),” he said. “Likewise, probably a quarter of our groups will have 20% or 30% or more” increase.

All health insurance carriers have yet to provide brokers with rate information for 2014.

Yet of the 27 small-business group plan renewals handled so far by Michigan Group Benefits, an East Lansing-based insurance agency, the median cost increase was 15% and the average was 23%, according to agency owner Michael Harp. Four businesses saw cost decreases, he said.